Ever since the ruling of the Munich I Regional Court in Siemens/Neubürger (Ref.: 5 HK O 1387/10), the questions of directors' and officers' liability and compliance matters, particularly the liability of executive board members of a stock corporation (AG) pursuant to Section 93(2) of the German Stock Corporation Act (AktG), and the liability of managing directors of a limited liability company (GmbH) pursuant to Section 43(2) of the German Act on Limited Liability Companies (GmbHG), have gained increased attention. In Siemes/Neubürger, the court held, inter alia, that a manager was personally liable for breach of compliance duties. The pertinent question of whether corporate fines, particularly cartel fines, are recoverable from the executive board or managing director (i.e. their own ultimate personal liability) has not yet been decided by the higher courts.
According to the prevailing opinion, which was followed by courts of instance such as the Saarbrücken Regional Court (Ref.: 7 HK O 6/16 and 7 HK O 21/19) in the sanitary cartel case and the Düsseldorf Regional Labour Court in the rail cartel case (Ref.: 16 Sa 459/14), the notion of recovering cartel fines was rejected. The Federal Labour Court, in turn, did not render a conclusive decision on this matter (Ref.: 8 AZR 189/15). Now, the Düsseldorf Higher Regional Court (OLG Düsseldorf), on 27th July 2023, ruled that executive board members and managing directors are not personally liable for any cartel fine that is imposed on the company (Ref.: VI-6 U 1/22 (Kart)). However, the OLG Düsseldorf allowed an appeal to the Federal Supreme Court to render a final decision on the matter.
In this blog, we first categorize the problem underlying the judgement (see 2. infra), we then summarize the essential aspects of the judgement (see 3. infra) and assess the implications of the judgement for practice (see 4. infra).
Violations of competition law – both in the EU and Germany – are subject to heavy fines: Companies can be fined up to 10 % of the respective total worldwide turnover achieved in the previous business year for intentional infringements. It is the responsibility of the members of the management body of a company to prevent such competition law infringements committed in the company. The members of the management body are also duty bound, in connection with the exercise of their own activities, that is to comply with all the requisite legal provisions which affect the company in its external relationship (the so-called duty of legality). There is no room for exercising entrepreneurial discretion, for example, by the so-called business judgement rule, to commit violations of the law (even if they might be useful for the company). Moreover, there are extremely stringent limits to a defense for wrongdoing based on the argument, the board member or managing director infringed the law by mistake and such mistake was unavoidable (even if he or she obtained legal advice which indicated the behavior to be compliant with competition law).
Furthermore, additional responsibility is casted upon the board members and managing directors to ensure that other employees of the company also act in a law-abiding manner. Board members and managing directors are thus subjected to a supervisory and monitoring duty, which may require establishing an effective compliance system encompassing antitrust law.
If a member of a management body violates his or her duty of legality or legality control vis-à-vis the company managed by him or her, and if a fine is imposed on the company represented by the member of the management body, e.g. due to a violation of competition law, the question arises as to whether the fine imposed – but also other costs such as legal fees related to the fine proceedings – are recoverable from the members of the management body (i.e. the board members’ or managing directors’ own ultimate personal liability).
The 6th Cartel Senate of the OLG Düsseldorf rejects the personal liability of a board member or of a managing director for cartel fines imposed on the company. The decision of the OLG Düsseldorf was based on the following – briefly summarized – facts:
In his function as a managing director of a GmbH, and at the same time as chairman of the board of an AG – two affiliated companies (the GmbH is a wholly owned subsidiary of the AG) – the defendant was regularly involved in an exchange of information between competitors in the stainless-steel industry which was in violation of competition law (the ban on cartels precisely), in the period from 2002 to 2015. After completing its investigations and conducting the fine proceedings, the German Federal Cartel Office imposed fines of approximately EUR 355 million on a total of ten companies involved in the stainless-steel cartel, two industry associations and seventeen natural persons – including the defendant. The GmbH, represented by the defendant, was fined EUR 4.1 million; no fine was imposed on the AG, but the fine proceedings against it were discontinued for discretionary reasons.
Subsequently, both the GmbH and the AG initiated legal proceedings against the defendant in the Düsseldorf Regional Court, seeking damages and compensation equivalent to the corporate fine imposed on the GmbH, for reimbursement of legal costs incurred by the AG, and for a declaration that the defendant was liable for all damages resulting from the competition law violations in the future, in particular from third parties claiming cartel damages against the AG and GmbH (private enforcement in the German competition law). The Düsseldorf Regional Court dismissed the damages and the costs of reimbursement claimed, but found that the defendant was obliged to compensate the GmbH and AG for any future damages resulting from the competition law violation (Ref.: 37 O 66/20).
The 6th Cartel Senate of the OLG Düsseldorf confirmed the first instance judgment of the Regional Court and dismissed the appeal of both the defendant and the plaintiffs.
Any recourse – the OLG Düsseldorf argued – would be against the legislative intention concerning the imposition of corporate fines. German competition law contains separate provisions for the imposition of fines: on a natural person on the one hand (section 81 of the German Competition Act (GWB)) and on companies on the other (section 81a GWB). This differentiated structure is also reflected in particular in the framework of fines and penalties, for instance, 10% of the total turnover achieved by the group of undertakings in the business year preceding the authority's decision in the case of a corporate fine, and a maximum of EUR 1 million in connection with the imposition of a fine on a natural person.
Moreover, the OLG Düsseldorf was of the view that allowing a company to seek recourse against a board member would compromise the intended punitive effect of the corporate fine. The purpose of the imposition of fines on companies is to deter companies and, thus, to prevent infringements of competition law. In the opinion of the Cartel Senate, allowing a company to recover fines levied on the company would impinge on the deterring effect of corporate fines. Moreover, it would essentially mean that the company can escape its own liability and responsibility.
The OLG Düsseldorf also rejected taking recourse to the case law of the Federal Supreme Court, according to which advisors are personally liable to their clients. This is because the imposition of a corporate fine necessarily requires a connecting act by a person acting on behalf of the company. The prerequisite for the imposition of any corporate fine is therefore, that at least two separate legal entities – the manager and the company – can potentially be considered as sanction addressees. This legislative decision would ultimately be undermined by allowing any fine recovery sought by the company.
As the costs for lawyers were directly related to the fine proceedings, these costs were also not recoverable. However, this was different with regard to civil claims of third parties who were harmed as a result of the cartel; this essentially means that a member of the management body is very much liable for damages resulting from private enforcement.
The judgement of the OLG Düsseldorf is not yet legally binding and it is likely that the Federal Supreme Court will make a fundamental decision on the issue of the recourseability of fines (and other costs related to the fine proceedings) in the appeal.
Nevertheless, the relevance of the OLG Düsseldorf's decision should not be underestimated. First, the question of the recourse of corporate fines for the violation of competition law has now been decided by a higher court, whereby the decision of the 6th Cartel Senate of the OLG Düsseldorf is in line with a large part of the previous case law of the lower and specialised courts – but not with all lower courts, such as the Regional Court of Dortmund, which recently even considered the recourse of fines against management bodies possible, if not even legally compelling (decision of 21 June 2023, Ref.: 8 O 5/22). Second, the ruling of the OLG Düsseldorf does not mean that members of management bodies may lean back (and their D&O insurance, provided it covers the conduct of the member of the management body at all, which tends not to be the case anyway in the case of intentional or at least knowing breaches of duty by the respective member): the liability for damages due to civil claims of third parties arising from the violation of competition law remains, which, according to the OLG Düsseldorf, may also be established by an action for a declaratory judgement (as was the case in the actual proceedings).
It is precisely the liability for claims by cartel victims that is becoming increasingly important in view of the growing number of cartel damages actions (the so-called private enforcement). In this regard, the supervisory board must continue to carefully examine whether damage claims against management bodies, in accordance with the ARAG/Garmenbeck case law of the Federal Supreme Court (Ref.: II ZR 175/95), must be asserted; according to this case law, and in the event management bodies fail to comply with their responsibilities leading to a damage for the company, the supervisory body is obliged to carefully examine and assert damage claims on behalf of the company against its management bodies.
Compliance and risk management systems is a “must-have” for companies – especially with regard to compliance with antitrust and competition law. This is also in the very best interest of the management bodies in particular: Compliance is a "matter for the top"! Legal violations should be consistently, effectively and timely investigated within the company. Internal audits – independent of events – can also help to identify critical areas at an early stage and effectuate initiation of appropriate measures.